Last week’s announcement by Mario Draghi that the European Central Bank (ECB) has every intention to continue with its 60 billion euros-a-month asset purchase program through September 2016 is to be welcomed, since Europe’s economic recovery is far from secure and its deflation threat is far from over. This makes it far too early for the ECB to start thinking about reversing course.
During the first quarter of 2015, the European economic recovery did pick up to an annualized rate of around 1.5 percent, which was better than that recorded in the United States. Yet despite that pick-up, Europe’s real gross domestic product (GDP) in the first quarter was still around 2 percent below its peak level in 2008 before the onset of the Great Recession. This stands in stark contrast to the United States, where real GDP is now some 8 percent above its 2008 peak.
Of equal concern to the ECB should be the fact that the European economy was supported by a number of factors that could prove to be transitory. Not only did the European economy get a big boost from an approximate halving of the international oil price; it also was supported by a marked depreciation of the euro and by a decline in long-term interest rates to record low levels. Also supporting the European economy was a relatively favorable international economic growth climate.
Full text of this article can be found at TheHill.com.
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